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Payment Of Gratuity Amendment Bill Passed In Parliament. How To Calculate It And Other Details

The passage of Payment of Gratuity (Amendment) Bill in Parliament will allow government to fix period of maternity leave.

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Payment Of Gratuity Amendment Bill Passed In Parliament. How To Calculate It And Other Details

The Payment of Gratuity (Amendment) Bill passed in Parliament

In a move that will benefit millions of workers of private and public sector companies, the Rajya Sabha on Thursday passed the Payment of Gratuity (Amendment) Bill, 2017. Now, the government will be able to enhance the ceiling of tax-free gratuity to Rs 20 lakh from the existing Rs 10 lakh for employees under the Payment of Gratuity Act, news agency IANS reported. It means that your tax liability will be nil in case you receive any amount upto Rs 20 lakh as gratuity. After the Amendment bill comes to force, the government may raise the limit of Rs 20 lakh further to increase the cap in gratuity amount as and when the need arises without having to change the law. Also, the amendment bill will allow the government to fix the period of maternity leave for female employees.

(Also Read: Decoding The Gratuity Bill - Who Benefits, Income Tax Implications And Other Details)

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Gratuity Amendment Bill Passed. Five Things To Know

How To Calculate Gratuity: Amount of gratuity is directly proportional to the tenure of service, and also to the last drawn salary. The gratuity is given at the rate of 15 days of last drawn salary for each year of service. And the salary that is considered for the calculation of gratuity is the last drawn salary that includes basic pay and dearness allowance. It is typically calculated according to this formula: Last drawn salary (basic salary plus dearness allowance) X number of completed years of service X 15/26. According to this formula, the time period of over six months or more is considered as one year. This means if you have completed five years and seven months of service, the number of years would be considered as six years for calculation of gratuity benefit. On the other hand, if the service period is five years and five months, for gratuity calculation will be considered as five years

Seventh Pay Commission: After the implementation of the 7th Pay Commission, the ceiling of gratuity amount for central government employees was doubled to Rs 20 lakh. The Payment of Gratuity (Amendment) Bill is in tandem with the new pay commission.


Maternity Leave Benefits: The amendment to the payment of gratuity law comes in the backdrop of Maternity Benefit (Amendment) Act, 2017 enhancing the maximum maternity leave period to 26 weeks. So, it means the maternity leave of 26 weeks will be considered as continuation of service for the purpose of calculating the amount of gratuity.

When is gratuity applicable:Gratuity is a benefit received by an employee for services rendered to an organisation. For companies covered under the Gratuity Act, this benefit is paid when an employee completes five or more years of service with the employer. The Gratuity Act applies to establishments employing 10 or more persons.

Who Are Eligible: The Payment of Gratuity Act, 1972 allows for the payment of gratuity to employees in any establishment, factory, mine, oil field, plantation, port, railways, company, or shop employing 10 or more workers.

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